Innovation is key to global financial transparency

Reform of the global tax system is high on the agenda. Ryan Geluk of BDO explores how innovation and technology have a major role in strengthening global financial transparency

Recent years have seen several high profile tax scandals, which has driven demands for an array of changes across the world, including the OECD’s BEPS project, the EU’s list of “non-cooperative” tax jurisdictions, and US President Donald Trump’s border tax plan.

There have also been specific calls for greater transparency in the tax system. Many parties, from tax campaigners, to legislators and regulators, believe there is too much opacity in global finance and, as a result, the risk of criminal wrong-doing going undetected is increasing.

Particular focus has been on registers of beneficial ownership of companies as a means to tackle corruption and tax evasion. Campaigners have stressed the need for publicly accessible registers of beneficial ownership – a system whereby any citizen can find out the ultimate beneficial owner of a company – with an overarching assumption that this would be the most effective system for fighting wrong-doing.

Importantly however, the discussion of the viability of beneficial ownership information solutions has been limited. The consideration of crucial parts of the beneficial ownership debate, namely the need for data security and appropriate levels of privacy, have been largely omitted. What’s more, the actual technological mechanisms that are needed to aid the valuable work of law enforcement agencies in countering financial crime have barely had a look-in, which in my view is a serious oversight.

In reality, innovation and technology have a crucial role in creating workable systems of tracking beneficial ownership information – and therefore, it has a major role in tackling the issues surrounding global financial transparency.

Let me give a specific example of such technology in action drawing upon my own experience.

The British Virgin Islands (BVI) is not only one of the world’s leading centres for company incorporations, it has been at the vanguard of efforts to develop a practical and effective solution for sharing beneficial ownership information.

BVI wanted to find a system that balanced the need for law enforcement agencies to find beneficial ownership information quickly and efficiently, continuing the meet international standards, and providing the appropriate level of privacy and security demanded by the industry.

Finding the balance between transparency and privacy is particularly important for the BVI. It is clear to the BVI government that international co-operation and transparency is an absolute necessity in any jurisdiction to prevent, detect and take action against crime; be it money laundering, terrorist financing or tax evasion. However, a level of privacy is needed to maintain confidence among the business community that they can continue to operate effectively. A loss of confidence would not only effect BVI, but also economies across the world, as company structures in BVI are behind enormous amounts of cross-border investment.

From the outset, the BVI government has been flexible and sought the views of both the private sector and local law enforcement authorities to ensure that it would create a fit-for-purpose system that met the needs of both parties. In modelling the system and crafting the legislation needed for it to operate, the government ensured that stakeholders had a say in its design, development and implementation. Moreover, bluntly imposing a technology platform on third parties is unlikely to yield the desired results, so it’s always preferable to collaborate where possible.

The result was the Beneficial Ownership Secure Search System (BOSSs). It is a platform with a searchable portal that allows beneficial ownership information on any BVI company to be shared with law enforcement agencies within minutes. Specific beneficial ownership information, as defined under the legislation, will be managed within this system by the BVI corporate service providers (CSPs) and available to be searched 24 hours a day, 7 days a week. Access to the search portal within BOSSs will be limited to a single BVI competent authority which will be authorised to conduct the searches and only to specific persons at that competent authority who have undergone a vetting process.

It works in practice as follows: once a valid request for beneficial ownership information has been made by a foreign competent authority (i.e. law enforcement, such as HMRC), BOSSs can be deployed immediately by the authorised BVI competent authority to find the relevant information. Once the search is complete, the BVI authority then shares the relevant information in a timely fashion (within 60 minutes in urgent cases) to BVI’s law enforcement agency partners. Because of the design of the system, the risk of tipping off a CSP that a search is being done has been eliminated too.

Crucially, the beneficial ownership information is not held in a central repository nor is the data managed by the BVI government. Through the use of technology, CSPs will hold all relevant beneficial ownership information within their own data repository, which is housed and accessible within a fully secure cloud-based network. Security within BOSSs follows international standards for data protection, including high levels of encryption which is applied both when transmitting the data into the system and also while it is at rest and available to be searched. This is critical for maintaining confidence in the system amongst individuals and businesses whose chief concerns are typically about privacy and the potential for data breaches. Each CSP repository is separately encrypted with a unique private key that is only accessible by that CSP.

The speed at which a search can be conducted is one of the reasons BOSSs is a leading and innovative solution. Specifically, BOSSs provides the BVI competent authorities with the ability to share beneficial ownership information within 24 hours with its international tax transparency treaty partners, putting it ahead of most other jurisdictions – without technology, it’s doubtful that such speed could be achieved. BOSSs has also led to improvements in data management within the BVI financial services industry, helping to drive even more robust control of beneficial ownership information.

BOSSs is an efficient, effective and innovative tool and the model it is based on must be given greater consideration in the worldwide debate on transparency of beneficial ownership information. It is exactly the sort of technology that will facilitate law enforcement to find criminals exploiting the global financial system and bringing them to justice.

So, whilst some argue that public registers of beneficial ownership are the silver bullet for ending illicit financial activity globally, it is clear that technology and innovation offer a much more practical and achievable solution. BVI must be credited for recognising the potential of such a system and, whilst under the glare of the international spotlight, working tirelessly to develop a solution that positions the territory at the forefront of innovation in tax transparency.

With this debate showing no signs of abating other territories must surely look to follow suit.